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Pepsi Company is one of the world leader producers of food and non-alcoholic beverages. It has got a snack branch in North America known as Frito-Lay, PepsiCo Beverage International and what is known as Quaker Foods also in North America.
Research reveals that the non-alcoholic beverage industry comprises of three major competitors which are PepsiCo, Coca-Cola and Cadbury Schweppes. PepsiCo is known to currently control around 21% of the total market share within beverage industry. However, Frito-Lay controls 60% of the total snack-food market share within the U.S market (Pepsi Company Overview).
Industry competitive structure analysis
The structure of the industry is oligopolistic; this is since the industry is dominated by three major players which are Coca-Cola, PepsiCo and Cadbury Schweppes. Analysis and description of beverage products in relation to competition focuses on market share owned by Pepsi in relation to its competitors.
The industry’s relatively slowing market is characterized by tremendous and stiff competition. The rivalry has majorly been between Pepsi and Coca-Cola for fairly longer time. Top ten ranked companies in beverage market based on market coverage includes; Coca Cola, Pepsi, Snapple, Cott, National heritage, Hansen natural, Red bull, Big red, Rock star and others with Coca-Cola at the top and Rock star at the bottom rank with only 0.4% market coverage (Pepsi Company Overview).
Coca-Cola Company owns four soft drink brands which includes; Minute Maid Juices, Minute Maid Lemonade, Fruit Drinks and others. Minute maid orange juices have tremendous success within the market. The success of Coca-Cola in business is based on conducting effective advertising and promotional programs which still keeps them ahead of competitors (Coca-Cola Company).
Pepsi Company deals with products ranging from Fritolay Brands, Gatorade Brands to Quaker Brands and best range of Tropicana juices under the Tropicana Brand. However, PepsiCo has shown improvement over the years in building great brand name.
Example of the companies struggling within the beverage industry is Snapple Juice Company. They have not succeeded yet in consolidating range of Snapple juices through retailers which could be of benefit in efficient product delivery to the target markets.
The company has also found it difficult to cope with the pricing which are always affected by costs of raw materials determined by their availability. They have been unsuccessful in offering Snapple brand having the capability of attaining to consumer’s level of health consciousness. Their new flavors have not yet been fully accepted within the market (Pepsi Company Overview).
Gross profit Margin comparison
|Pepsi (%)||Coca-Cola (%)||Cadbury (%)||Industry Average (%)|
The comparison of the gross profit margin shows some great concern within PepsiCo’s profitability based on sales. Coca-Cola has clear gain of more profit on sales as compared to other competitors. This gives some hint on PepsiCo’s ability in the management of the cost of production since most of its values are less than industry average.
Financial comparisons of key competitors
Despite the low concentration of firms within the beverage industry, the three major firms PepsiCo, Coca-cola and Cadbury Schweppes accounts for almost 80% of the entire global market. The largest market share within the industry is under the command of Coca-Cola accounting for almost 50% while PepsiCo controls around 21% of the total global market share, Cadbury has below 10% coverage. The level of competition amongst these firms is basically based on product differentiation.
Some of the key accounting policies applied in the analysis and valuation of the company’s financial status include revenue recognition, income tax expense and ascertained accruals, quality of brand and valuation of goodwill as well as stock compensation expenses. For the purposes of maintaining high reputation for superior products, PepsiCo resorts to recognizing their revenue upon delivery of products (Sila and Ballard 13-46).
Evaluation on the accuracy of PepsiCo accounting policies gives clear picture of their economic reality within the industry in comparison to other companies. All the companies within beverage industry recognize revenue upon transfer of products.
They also apply the use of credit terms allowing payment to be made within 30 days of delivery, at the same time PepsiCo and Coca-Cola applies the same principle on brand and goodwill valuations. Indefinite intangible assets are not amortized while definite intangible assets are amortized within the beverage companies, the three companies also applies the use of fair value methods for the purposes of accounting for employee stocks (Sila and Ballard 13-46).
Analysis of the Financial Statements
Overall operations of PepsiCo outside United States have proved viable since it generates approximately 35% of the total net revenue. Twenty percent of these are obtained from potential hubs such as Mexico, United Kingdom as well as Canada. The other percentage ranging between 13-15% is generated from other countries of the world.
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However, PepsiCo’s market penetration is exposed to threats such as foreign currency and political unrest. Prevention of such risks involves strategies such as entering into forward contracts having terms of no more than two years (Sila and Ballard 13-46).
Accounting Ratios for PepsiCo since the year 2000
|Quick Asset Ratio||1.0||0.75||0.72||0.76||0.8|
|Gross profit margin||53.6%||53.56%||53.67%||59.46%||60.46%|
|Net Profit Margin||14.4%||13.23%||13.19%||9.88%||10.68%|
|Return on Asset||15.05%||14.09%||14.11%||12.26%||11.90%|
|Return on Equity||31.24%||30.15%||35.81%||30.76%||30.11%|
|Capital Structure Ratio|
|Debt to Equity Ratio||1.07||1.14||1.53||1.51||1.53|
Examination and analysis of several accounting ratios helped in determining the liquidity of PepsiCo. The current year financial breakdown and previous years gives the clear analysis on the changes experienced within PepsiCo. The ratios reveal the company to be relatively liquid.
The current ratio reveals favorable status, the increase from 1.2 in 2000 to current 1.3 shows that the current assets have increased compared to current liabilities. The firm’s liquidity is further revealed by quick ratio which determines its ability to meet current obligations on the basis of improved liquid assets.
The improvement could be recognized from 0.8 in 2000 to 1 in the current year, showing that current and future obligations of the company can now be solved faster than previously. However, receivable turnover have since decreased posing some threat to liquidity. Inventory turnover has experienced considerable increase indicating valuable productivity in the use of inventory, the increase from 7.9 in 2000 to current 9.76 clearly indicate this (Sila and Ballard 13-46).
The level of profitability for PepsiCo is considered moderate as revealed through the financial analysis. The company has experienced decrease in Gross Profit Margin, indicating an increase in the level of cost of goods sold over the years. This means that the company spends more on the production of their products compared to the output.
There is an increase of around 0.12% from the previous years. Net profit Margin has since changed creating some positive impact; the notable increase has been around 4.4% since the year 2000. Asset Turnover has however decreased from 2000 indicating that PepsiCo has got trouble in converting the available assets to sales (Sila and Ballard 13-46).
The analysis of the financial ratios indicates that PepsiCo has slightly positive results on the capital structure. The ratios show positive Debt to Equity ratio, hence the company’s ability to finance its businesses debt free. The level of liquidity ratios revealed indicates that PepsiCo has got the capability of meeting short-time obligations better off than other competing beverage companies within the market.
Coca-Cola Company. Hoovers, 2006. Web.
Pepsi Company Overview. PepsiCo. Web.
Sila, Emon & Matt, Ballard. Pepsico Valuation, 2005. Web.